After the fall of the Soviet Union,
and even China's migration to a market-based economy--
even though they call themselves Communists,
their economy is now, essentially, capitalist--
there's been a general consensus around the world
that capitalism is the way to go.
And just to put my bias out there, right from the get go,
I am in that camp.
I would consider myself a capitalist.
But what I want to do in this video is do a little bit more
of a nuanced discussion of capitalism
versus, say, socialism.
Because I feel like there has been-- especially here,
in the United States, and in the West--
a knee jerk reaction against anything
that even has a whiff of the government getting involved
or even a whiff of socialism.
So I want to think more about what are we
trying to achieve with the capitalist system.
And where we could fall into the things
we don't want to achieve if some of the aspects of capitalism
are allowed to go on without any type of controls
or, maybe, some type of regulation.
I don't want to advocate anything.
I just want to give, maybe, a framework for thinking
about it.
So you ask any capitalist, including myself, you
say, well, what's good about capitalism?
And I would say, well, you know it
aligns everyone's incentives.
So it's good incentives.
If you work harder, you can earn more,
you can generate a capital for yourself.
You can use that to improve your standard of living.
You can reinvest that capital.
So it's a good incentive structure.
I'm not saying that everyone is motivated purely
by the desire to earn.
I think there's plenty of people in the world who are motivated
for the desire for social good, for elevating mankind.
But the general census in a lot of parts of--
is that those type of things are specific to certain domains.
But, in other domains, if someone's running a trucking
company, it's not clear that someone would run a trucking
company optimally just for the good of mankind.
Maybe they would run some type of nonprofit that way.
But a trucking company, or a farm,
or something like that, who knows.
So in general, you have a good incentive structure.
There's also this notion in a capitalist economy
that it's a meritocracy.
It is meritocracy.
And I'm going to, actually, put a box
around this because a meritocracy, in my mind,
is super duper important.
Because even if you talk to us-- almost everyone
is a fan of a meritocracy.
Even the communists were a fan of a meritocracy.
They would give exams to people and have
the people who were successful have
more authority within the communist regime.
So a meritocracy is something that everyone lays claim to.
And actually a lot of socialists or communists
would claim that extreme forms of capitalism, when the wealth
disparity becomes two extreme or where you have inherited
wealth, actually goes against the idea of meritocracy.
So let me actually put meritocracy here as well.
And we'll talk about that in a second.
And then the other ideas is that you
have innovation in capitalism.
And these are all related ideas.
That if the incentives are good, if capital
gets in the hands of people who are most deserving of it
because they've somehow earned it, they've somehow innovated,
that can also lead to innovation because the right people
are handling the capital.
Now, if we go to the socialist side of things,
they'll say, well, look, there's a social cohesiveness to this.
So let me write this down.
And I won't speak to the-- I don't
claim what I'm going to do in this video is comprehensive
of all of the pros and cons of either.
I just want to give a little bit of nuance to the discussion.
So social cohesiveness.
You won't have this situation where
you have a gazillionaire sitting behind a walled compound
with armed guards and their people
right on the other side of that walled compound starving
to death.
And these people don't even, necessarily,
view themselves as part of the same society,
that they somehow have a responsibility to each other.
And that is happening in some parts of the world
where you have severe disparities in wealth.
The rich people don't even view themselves
as the same species as the poor people or even vice versa.
You have the other idea of-- and I'll
put this in quotes-- fairness.
And I'll put it in quotes because one could say,
well, it's fair if you make more, if you work harder,
you should get more.
If you innovate more, you should get more.
And then their notion of fairness
says, well, yeah, but look sometimes this wealth gets
so extreme. sometimes you have this notion
of inherited wealth.
Generation after generation.
Old money.
What's fair about that?
That people are just randomly born
into a situation where they can just extract the interest off
of their wealth and never have to work.
And other people have to work super hard
and they really get nothing for it.
So this notion of fairness, I'll put it over here as well.
Fairness.
Because there's arguments for either.
And so, like I said, I'm definitely
biased to the capitalist side of things.
I think there is an importance to these things
that we have on the right hand side.
But the reality, at least what we've
seen in the economic experiments of the 20th century,
is that even though communists and socialists might speak
to these types of things, to a large degree
there's less social cohesiveness.
The senior communists in the Soviet Union
would drive fancier cars.
And they did have a very different lifestyle then
the workers.
And they would hide that lifestyle.
And then it would lead to a lot of hypocrisy.
In general, the extreme forms of socialism-- not
clear that it was a meritocracy.
It might have been just the best people climbing up
the party ladder that get to the top as opposed
to the people who would innovate and actually
produce in a better way.
But with that said, I want to give fair warning,
that capitalism, if it goes unchecked in certain ways,
it could also lead to those same problems of socialism.
And the main problems there, when you
think about good incentives.
I think the incentives, and once again,
I'm giving my opinion here, the incentives
work out well when you have a bunch of competitors
who can compete and innovate.
And it makes complete sense that, let's say,
that this person comes up with an innovation.
And because they have that innovation,
they're able to provide a better good that's cheaper to society.
And so they make more profits.
And it seems reasonable that person
should get more profits, and more wealth, and grow.
And it could even be good for society
because this person's an innovator.
Maybe there was an element of luck there.
But it seems like they're competent at managing
these resources.
So it's good for society to give them more resources to manage.
The areas where it becomes less clear that capitalism
is unambiguously good, is a situation
where this person becomes out right dominate.
So let's say that this person becomes so big that none
of these other players can even compete with them.
So they all disappear.
This person can just undercut everybody.
And all the other players disappear.
And this is the situation of a monopoly.
And the problem here is, when this guy had competition
he had every incentive to work harder.
He had every incentive to innovate.
It was a meritocracy because the person who innovates well
grows the fastest.
But once you get to a monopoly stage,
and everyone else has died down, this
is the only player in the economy, then all of a sudden,
he has no incentive to innovate.
This corporation or this person can just keep raising prices.
There's no competition.
There's no one else to say, hey, I can have a better product
or I can sell it to you cheaper.
And so it actually goes against the ideas of innovation.
That's why it's really important.
And that's why it's part of, especially in the United
States, the economic system that you try to break up monopolies.
That you don't like monopolistic practices.
The other risks that you have when
you start having a lot of wealth and a lot of influence
in one entity, or one person, or one corporation--
and this can happen in a democratic or even a non
democratic regime-- is that, the control of resources
aren't just control of those resources.
Aren't just control of land, and buildings, and railroads.
They can also use it to influence government.
And in the United States, this has
been institutionalized in the form of lobbying.
And when you have excess resources
and you can influence government in this way,
you can get the government-- so let's say
this is the government over here-- to,
essentially, do things for you.
So it works to your advantage.
And may be allowing you, eventually,
to become a monopoly.
So you can view this as crony capitalism,
where lobbying can be a form of legalized bribery.
And in that way, you kind of own the elected officials.
I'm not saying that this is happening everywhere
but it could happen.
And in that situation, you have the government
acting on behalf of these.
And, once again, it goes against the idea of a meritocracy
because when you have this cycle developing,
maybe this person right over here has the innovation.
But this person doesn't have the clout,
doesn't have the influence with the government.
And so this guy gets the government contract
for the planes.
Or this guy gets the tax benefits from the government
so that he can be even more competitive.
He can undercut this guy even though this guy
has the innovation.
The other element-- and I could talk about this for hours.
And these are just things to think
about-- are the idea of inherited wealth.
And I'm not saying that inherited wealth
is a bad thing.
But there's this idea that, let's say, someone
through their competence, maybe competence
with a little bit of luck, is able to accrue
a huge amount of wealth.
And maybe they're not even a monopolist.
But they're able to get a huge amount of wealth.
But they were able to do it-- that they're really
good managers.
They're kind of these really smart dude.
He can he can really manage a lot of resources well.
The question arises is, what happens
when this person passes away?
In a very purely capitalist situation,
you pass this onto your children.
So you pass this onto your children.
And the issue here is, one, what did this person do to earn it?
And also from a society's point of view, maybe
this person here is a dummy.
Maybe there was another kid over here
who was born at the exact same time, who is way smarter
and who-- but this kid is now in control over 100 gazillion
dollars.
And he can completely mismanage the resources
so that they're completely wasted.
And so you have this idea of-- over time-- inherited
wealth in a capitalist society can
go against the ideas of meritocracy.
It can go against the idea of good incentives
because if this guy inherits enough money,
he has no incentive to work.
Why should he have to study hard and go and tackle
math and all that?
He's inherited enough money that he
gets millions of dollars just off of the interest.
Why should he educate himself?
He got daddy's or granddad's money.
And so it also goes against the idea-- and why should
he try to innovate?
Why should he ever do anything?
He could maybe just hire some of these people
and give them a minimum salary, whatever it takes.
And so it goes against these ideas of fairness and all that.
And I'm not saying that I'm against inheritance.
I'm just saying this is something to think about.
And there's some, probably, threshold of inheritance
that it starts to undermine some of these ideas
of a meritocracy, and good incentives, and fairness,
and all that.
And that's why I think it's funny
when people who call themselves "old money" are proud of it.
They view themselves as, somehow,
being part of a better caste because "old money" means
that you did not earn the money yourself.
That your granddad or you're great grandad earned the money.
And you've just happened to be born in this family and are,
essentially, just living off of the interest.
And it's funny because they'll talk about "new money"
as if they're not as good as old money.
But at least in new money people-- maybe
it was through luck, but maybe it
was through competence or innovation-- this is something
that, at least in my mind, I'd respect more than old.
Old money, you've done nothing.
What's the difference between old money,
or a king and a queen, or the aristocracy of Europe,
that goes against a lot of the philosophical underpinnings
of what the United States is even based on.
So I'll leave you there.
I just want to add a little bit of a nuance
to the conversation.
And I will say-- I'll say it again--
I come to this conversation with a capitalist bias.
But I'm hoping that this gives you
a little bit of more nuance.
So that instead of saying, capitalism
is an unambiguous good and socialism
is an unambiguous bad, these are the things
that we should try to promote.
And to do that, we do have to do some things,
like make sure that everyone is educated
so that we can have a meritocracy.
If everyone is educated, then you have a level playing field.
You have this notion of equal opportunity.
And that does involve some type of, on some scale,
redistribution of-- at least in the form of education.
Maybe you do need some way for people to get health care.
You don't want people dying in the streets.
I'm not going to take a stance here,
but I'm just showing you that you can't just,
even though I do consider myself a capitalist,
you can't just say that everything
has to be purely capitalist and you
can't have any notion of government intervention.
You maybe want the government to invest
in things like long-term research.
Where they don't have an immediate profit
motive, but 50, 100 years down the future
it might allow the society to thrive or whatever else.
So I'll leave you there.